Beginning in 2014, massive tax subsidies will be available to help individuals buy individual health insurance coverage through the new state-based public exchanges. Tax subsidies will be available, beginning in 2014, for individuals who enroll in silver plans through an exchange. This subsidy caps the cost of an individual’s health insurance at 2% - 9.5% of their household income if their household income is less than 400% above the federal poverty line (that’s ~$90,000 per year for a family of 4 in 2012).

If an employee’s employer doesn’t offer a “qualified” and “affordable” company-sponsored group health plan, the employee gets a federal subsidy automatically applied to the cost of their individual health insurance policy. Large employers are charged $3,000 per year for each employee who receives the subsidy, up to a maximum of $2,000 per year for all employees. Employers with less than 50 employees are not charged anything if their employees receive the federal subsidy.

Due to these massive tax subsidies on the individual market, virtually every employer with less than 50 employees will switch from group coverage to simply giving employees tax-free allowances via HRAs to purchase their own individual health insurance policy. And, most large employers will follow suit once they realize how large of a subsidy their employees receive if the employer doesn’t offer group coverage. These examples should explain why:

Example 1 – Family of 4 with $90,000 annual income

Example 2 – Family of 4 with $45,000 annual income

Example 3 – Single Person with $40,000 annual income

Example 4 – Single Person with $25,000 annual income

Notes about the calculations

For these calculations, I used the Kaiser Subsidy Calculator. The premiums are illustrative examples in 2014 dollars derived from estimates of average premiums from the Congressional Budget Office. For a 40 year old single adult, the premium for a silver plan is assumed to be $4,500 for a plan with a 70% actuarial value.

Premium subsidies are based on a silver plan (with an actuarial value of 70%), so all premiums shown are for silver coverage. People may be able to pay a lower premium for less comprehensive coverage (i.e., a bronze plan, with an actuarial value of 60%). The tables showing results by age and income also reflect premiums for silver coverage, though the minimum insurance that people would be required to obtain would be bronze coverage.

The proposal also makes available a catastrophic policy for young adults and those exempted from the requirement to obtain insurance that is less comprehensive and has a lower premium than other coverage. It is not reflected in the calculator.

The actual premium calculated is adjusted for family type, and for age (within the three to one limit specified in the proposal). Subsidized people can enroll in more expensive plans, but must pay the full difference in the premium.

You only show the income levels and subsidies for singles or families of four. What about a couple, or family of three?

Tom H

I already have a catastrophic hsa2500 health insurance policy thru Group Health in Seattle. Will I be able to quit this policy, and sign up with the exchange, and take advantage of these huge subsidies? Or, are these subsidies only for the currently uninsured?

Christina Merhar

Hi Tom, Great question. If you have affordable, qualified coverage offered to you through an employer, then you will NOT be eligible for subsidies through the exchange.

However, if your policy is an individual policy (which it sounds like it may be) then yes, you can cancel it and purchase through the exchange instead.

Thanks Christina I would like to link a quote from The PPACA (care of Wiki):

I put in Capitals the relevant language.

There is an unequivocal definition of what grandfathered mans, and it says if you were insured before passage of the ACA, you will NOT be eligible for subsidies or credits. Health insurance exchanges are established, and subsidies for insurance premiums are given to individuals who buy a plan from an exchange and have a household income between 133% and 400% of the poverty line. To qualify for the subsidy, the beneficiaries CANNOT BE ELIGIBLE FOR OTHER ACCEPTABLE COVERAGE.[109][111][112][113] Section 1401(36B) of PPACA explains that each subsidy will be provided as an advanceable, refundable tax credit[114] and gives a formula for its calculation.[115] A refundable tax credit is a way to provide government benefits to individuals who may have no tax liability[116] (such as the Earned Income Tax Credit). The formula was changed in the amendments (HR 4872) passed March 23, 2010, in section 1001. The U.S. Department of Health and Human Services (DHHS) and Internal Revenue Service (IRS) on May 23, 2012, issued joint final rules regarding implementation of the new state-based health insurance exchanges to cover how the exchanges will determine eligibility for uninsured individuals and employees of small businesses seeking to buy insurance on the exchanges, as well as how the exchanges will handle eligibility determinations for low-income individuals applying for newly expanded Medicaid benefits.[117][118] According to DHHS and CRS, in 2014 the income-based premium caps for a "silver" healthcare plan for a family of four will be the following:

"Not Eligible for Other Acceptable Coverage To be eligible for credits, an individual cannot be eligible for other acceptable coverage—that is, “minimum essential coverage,” defined as Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), coverage related to military service, an employer-sponsored plan, A GRANDFATHERED PLAN,7"

Note 7 defines a grandfathered plan as follows:

7 A group or a NONGROUP plan in which the person is enrolled and was enrolled in PRIOR to enactment of the legislation, per Sec. 1251 of PPACA.

Christina Merhar

Hi Tom,

I am not sure I understand your question well enough. Can you rephrase your question in a couple bullet points, so we can respond accurately?

Thanks.

Tom

Since last posting, I have corresponded with the author of the paper I linked you to. He has assured me that despite language which defies comprehension, I am indeed eligible for the federal tax credits and cost sharing caps.

Many thanks for the follow up Christina.

Tom

I felt that I had found some statements in the ACA that excluded people like me from tax credits.The material I provided could very easily be construed to say people like me, already insured on the day the act passed, would be ineligible for tax credits. Luckily for me, the wording was misleading, and I misinterpreted.

After receiving a letter from my insurance co. that my premiums are going to be raised in December, someone directed me to this website. I put my figures into the calculator and came up with a premium cost of $362 (my share). That is double what I'm paying now for health insurance and provides less coverage, which means my out-of-pocket will increase as well. I can't afford that. I'm still looking for the "affordable" in the Affordable Care Act.

Christina Merhar

Hi Syndi, Thanks for your comment and perspective. Are you currently employed? If so, it might be worth asking your employer to contribute to your policy via a Defined Contribution health plan. This might help with the cost increases... Just a thought.

Syndi Martin

My company does not provide any type of health care contribution, nor will they. It is a very small company, 4 employees. Implementing an affordable care act that makes insurance unaffordable and then asking everyone to pitch in is not my idea of affordable, fair, or in any way a benefit to this country.

Syndi Martin

"Defined Contribution Health Plans" have one huge pitfall. In this type of plan, your employer deposits a set amount into a health account, which REIMBURSES you for what you spend up to that amount. This reimbursement can take a week to ten days. So if you don't have the $400 to fork out for insurance in the first place, its not very helpful. You have to spend it first before you can get reimbursed for it. People living paycheck to paycheck often cannot afford to be out of pocket large amounts of money waiting for the health account management company to reimburse them.

wow that kind of information i really need thanks to share that information i appreciate you and your post.

Christina Merhar

Hi Syndi - Good point that it is a reimbursement arrangement. Some defined contribution software providers will process in a couple of hours for same day reimbursement. But it is a shift in how employees receive the benefit. I hope that helps!

Rick, according to Intuit, your statement is incorrect. A benefit cannot be paid prior to its incurrence. You can 'set up' a reoccurring claim, but you have to provide receipt of the expense before you can be reimbursed. All the 'recurring claim' setup does is enter all the details so all you have to do is attach the receipt and submit. In fact (Rick and Christina) many defined contribution providers consider a health insurance premium payment paid in advance (i.e. the first of the month for that month's coverage) a prepaid expense that does not become valid for reimbursement until the end of the month. That is because of the possibility that the benefit can be cancelled and a refund for the premium received, in effect paying the employee twice (reimbursement for the expense from the management company and reimbursement for the premium by the insurance company). So for those companies using Intuit (and others like them), you incur the expense at the first of the month but don't get reimbursed until 30 days later.

As always seems to be the case, proponents of the Affordable Care Act seem to ignore the problems with it while trying to provide you with a very weak resolution to any issue you may bring up.

First, same-day reimbursement is 100% allowed. Most providers don't support it because they are not set up to support it (it requires claim processing times to be < 1 hour).

Second, same-day reimbursement is not the most popular method. Most companies we work with use the payroll method on a weekly, semi monthly or monthly basis, and save the same-day reimbursements for emergency situations (e.g. specific employee has a unique need).

Regarding the recurring claim, I think you may be misinterpreting what I am suggesting. Please allow me to elaborate - my assumption was that your primary concern was an on-going employee "cash flow issue" (this is a very real and common concern). One way to address this is by syncing up the recurring claim (after delaying a month) with the draft date of the premium payment.

The downside of this approach is that it creates an initial out-of-pocket event for which an employee will always "be behind". So, it's not ideal and this is not an approach we recommend (actually, we view it as adding unnecessary complexity).

In reality, the initial transition period (first 90 days) is the hardest part about adopting a pure defined contribution solution. In our experience (since 2006), the vast majority of employees get very happy after 90 days once they "get it". And, there are numerous strategies an employer use to address the issues that may arise.

Currently, defined contribution may not be an ideal solution for all employers. Why? The primary downside is medical underwriting for those employees with pre-existing conditions. However, the ACA addresses this starting 1/1/2014. And, regarding your cash-flow / budgeting concern, the low-income employees will receive tax credits that make the out-of-pocket events much less impactful. For example, a minimum wage earner only pays $55 per month (after tax credits), starting 1/1/2014.

I'm sorry you feel the defined contribution solution is "weak". Can you elaborate so I can respond more thoughtfully?

Hope this helps!

-Rick

Tom H

Syndi's initial criticism was that if you do not qualify for healthcare subsidies, and your employer is not interested in offering any kind of a plan, then you will see an increase in your healthcare premium. In her case, a 100% increase.

It sounds to me that Syndi currently has a catastrophic policy at about $180 a month, as I don't see she could obtain a standard policy so cheaply. Of course the policies on the exchange are standard, and superior to catastrophic policies, and consequently cost more.

If Syndi was under 30 years old, she would still be able to purchase a catastrophic policy at a much lower cost than $362 per month.

However, if she is over thirty, she is being forced to upgrade and spend substantially more on healthcare insurance. So is her original criticsm not correct?Happy to be corrected on this.

Tom H

Sorry, just reread syndi's original post. She says her existing individual policy provides superior coverage to that on the exchange. For $180 a month, that is a fantastic deal. So the minimum requirements of the ACA, have not caused the premium to increase, as the plan is already superior to the mandated coverage. If I was Syndi I would want to know why the increase, as it appears to have nothing to do with the ACA.

While my previous post does not apply to Syndi's situation, I stand by the assertion that many individual policy holders over thirty who currently have catastrophic coverage, who do not qualify for subsidies, will see a big increase in premiums as they forced into a "silver" or a even a "bronze" plan.

Syndi Martin

The reason for the increase per the letter I received from Blue Cross Blue Shield was due to the provisions of the ACA that go into affect January 1, 2014, which is when my insurance premium for the current plan I have will increase. And the 100% increase is my portion AFTER the subsidy I would be eligible for AND if I buy insurance through the state insurance pool (which purports to be cheaper than private insurance). I can make a logical assumption that my private insurance will be more, because the subsidies are only available if I purchase through the state pool. I might as well wish on a magic star or blow pixie dust in the air as I click my heels together 3 times if I think that BCBS-MS (who administers the State pool in Mississippi) is going to continue to charge me $188/month for private insurance when they can charge me $600/month through the state pool.

Regarding your assertions that claims can be processed same-day, while that is true in the strictest sense, it is not feasible in a practical sense and seldom occurs. The reason is that your employer pays for the distributor company, and those companies that provide same-day reimbursement are much more costly, for the simple fact that they have more staff to handle fast claims processing. The average company will give you a 5-day wait for reimbursement. That is 5 BUSINESS days, and does not include the day you submit the claim, nor the day you receive the reimbursement. So for example, if you submit the claim on Monday, Tuesday is day 1, Wed Day 2, etc., with Day 5 being the following Monday and you receive your money on Tuesday. So you're out of pocket 8 days, IF you file your claim on the day the payment is made. However, if you have insurance premiums directly deducted from your bank account, you often don't know about it until the following day. So add another day or two to the above timeframe. Remember, even if you have your checking deductions set for the first of the month, you MUST wait until that money has actually been deducted and you can show proof (via your bank statement) before you can file the claim.

You have not addressed my concern. My one and only concern is that, thanks to the ACA, most Americans will see their insurance costs increase. Even the Unions, who are pro-dem and were in favor of overhauling health care, say that the ACA has caused more problems and hardships than it solved.

You can sugar coat it all you want. But the ACA is a bad idea and getting worse by the moment. This is a practical opinion. You can wave around your assertions all you want, I am speaking from an individual experience. My premiums - based on YOUR calculations, are going to double my out-of-pocket costs. HOW IS THAT AFFORDABLE?????

Let me answer - its not. Yay for the person making minimum wage that can now buy insurance for $55.00. Oh, but wait, that's not really the case, is it? Because if that minimum wage worker is full time and works for a company with more than 50 employees, like McDonalds, 7-11, Dollar General; his employer is going to provide coverage, which he will be forced to accept, and which we will be required to pay his portion of the premium, and IS NOT ELIGIBLE for any subsidies because the subsidies are only available for individuals who do not have employer-provided coverage. So he/she won't really be paying $55/month. Their premium will likely be 3 times that. Because the EMPLOYER MAY HAVE TO PROVIDE INSURANCE, BUT THEY DON'T HAVE TO BEAR THE BURDEN OF THE ENTIRE PREMIUM!!!!

Syndi Martin

In a nutshell -

In a perfect world, the ACA would be great. That perfect world would assume that insurance companies will take a loss of profit to provide better coverage, employers will purchase adequate insurance for their employees without passing the additional cost on to the employee and that medical providers and drug companies will begin lowering their costs so insurance companies can continue to operate without raising premiums and employers could continue to provide quality insurance to their employees.

We live in a greedy world. Whenever the government requires a company to provide more or better anything to its customer, the customer sees a corresponding rise in the cost of that service/product. Thats just a fact. The insurance company is going to have to pay out more because of the ACA. They have two choices, reduce profits or raise costs. Which do you think they are going to do? Subsequently, employers have two choices. Reduce profits or pass the premium increase on to the employee. Which do you think they are going to do?

But then, in a perfect world, the ACA wouldn't be needed.

Rick Lindquist

Tom/Syndi,

My response was entirely directed at the criticism of the defined contribution solution.

I completely understand Syndi's criticism of the bill based on her situation - I am in a similar situation myself (and I'm not happy either - my individual health plan premium is likely going to triple in 2014). Luckily, my employer offers a defined contribution that will cover the full amount, so it won't really affect me directly.

By the way (Syndi), your example highlights a good reason for McDonald's to cancel group health insurance and adopt a defined contribution solution... so that those minimum wage employees can go get the tax subsidy (and McDonald's monthly per employee cost would be capped at $55 + the $2,000/12 per tax penalty).

Apologies Syndi, the aspect of the ACA that relates to pre existing conditions, and older members not being charged more than 3x the youngest members, would indeed cause a rate increase for the majority of those insured.

I think the ACA is bad for you, because you're coming out of a superb package. It's good for me because I'm moving into a superb package.

However, even before I discovered what a windfall the subsidies would mean for me, I was a supporter of :

Also the idea that we get people in to see a doctor earlier, rather than later, is a key motive for the passing of the law.

It's simply not all bad.

TinaV

Ok what determines household size- in our family we have hubby on medicare and myself 61 still working and a daughter still at home at 17. With my husband social security income added in if we make us a family of 2- we qualify but if we make it a family of 3 it says we don't. Since my husband is on medicare-do we have to count him in the total because he will not be reaping any subsidy amount although we will be using his retirement income in our income totals?

Christina Merhar

Hi Tina V: Household size is the number of people in your household, including yourself, spouse, and IRS-defined dependents. Hope that helps.

Okay, I have just read through the above form. The form asks us about gross income, which has nothing to do with magi.I am more confused than ever. How does answering the questions on this form help the exchange decide if we qualify for subsidies?

Tom H

Apologies, please disregard above post.

Sandy

EQUALITY in addition to affordable. Every person in this country should be charged the exact same amount - newborn to 64 years and 364 days. No 'exchanges'....let the insurance companies offer coverage to the citizens - they are free to offer whatever benefits they want in exchange for the set payment - crappy plans will not get customers.... let them compete for MY BUSINESS.

Heather

What if your employer offers insurance, but only pays for part of it. In my case, they pay my part (individual) but I have to pay the difference for a family policy. Would we qualify for subsidies? How would we figure income and family members, etc.?

Tom

I'm on non taxed S.S. disability & have my own Bluecare heath insurance HMO plan. My wife & I(total incomes)qualified for the Obomacare subsidies. On our income taxes (we file jointly)am I included in the taxable income?? My tax preparer says YES & others say NO. Instead of getting a yearly refund we now owe $380.00. How is this to help out middle class families when they get you on the taxes at the end of the year??

Tina

Everyone's income is included whether or not you choose to participate in a subsidy plan because you file joint. Even a child's income such as ssi or disability will be included. The programs have such high deductibles it's like paying for air.

Disclaimer: The information provided on this website is general in nature and does not apply to any specific U.S. state except where noted. Health insurance regulations differ in each state. See a licensed agent for detailed information on your state. Zane Benefits, Inc. does not sell health insurance.